Best buy ISA rates have fallen by up to 61% since the introduction of the Funding for Lending Scheme in July 2012, according to Savings Champion.

Cash ISA’s have waned in popularity over the years as interest rates have fallen and government initiatives such as the Personal Savings Allowance (PSA) have been introduced.

“In the past, as well as the interest being tax free, rates were often better than the standard savings accounts, making an ISA the best option, even for non-taxpayers,” the firm said.

Savings Champion director Anna Bowes said “As many savers will currently find that the interest they are earning on their non ISA savings is within their PSA, they will question the point of opening a cash ISA if the interest rates available are lower.

“However, savers should still consider whether a cash ISA may come in useful in the future. Interest rates, on the whole, are increasing and as they continue to improve, the PSA will be used much more quickly, so savers could find themselves paying more tax on their savings than they need to, especially if there is a change in their fortunes – or if the PSA is abandoned in the future. And remember, if the ISA allowance is not used each tax year, it is lost forever as you cannot go back and utilise it retrospectively.

“It’s disappointing that many providers, as well as savers, have turned their backs on the humble cash ISA. However, rates have improved significantly over the last year, due in part to more challenger banks adding cash ISAs to their stables. Although there is still a long way to go to return to pre-FLS levels, things are moving in the right direction and the gap is beginning to narrow.”

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